Algeria’s New Government Will Face Tough Economic Problems

By Colin MacKinnon

Sometime soon Algeria’s new President Abdelaziz Bouteflika, elected April 15, will appoint a government to deal with the country’s civil war and shambles of an economy. Good luck to him.

The civil war makes Algeria’s tough economic problems much harder to deal with. And 1999 is a particularly crucial year.

Algeria has been wracked with violence since early 1992, when local elections, held in December 1991 and dominated by the Islamist political party Islamic Salvation Front (FIS), were overturned by the military. At the same time they annulled the election, the military declared FIS illegal.

When that happened, FIS and other Islamist groups went underground to conduct a campaign of violence, at first targeting the security services and individuals the Islamists considered close to the government. But the violence spread, with out-and-out criminal elements joining in, and engulfed Algerians of all stripes.

Since 1992, at least 70,000 people have been killed in the violence. (Human rights organizations put the figure closer to 100,000.)

The Troubled Economy

Algeria’s economy is in deep trouble, too. Unemployment is 30 percent. The labor force grows by 4.1 percent annually and 70 percent of the population is 25 years of age or under. Industry and agriculture, still largely in the hands of the government, are inefficient and unproductive.

Algeria is feeling a real squeeze this year, too, because of its foreign trade problems. Foreign debt totals $30 billion. The country will have to spend $5.7 billion, almost half its expected foreign exchange earnings, for repayment of that debt in 1999—this after a long period of low oil prices.

During the big oil price collapse that began in 1997, the country’s gas and oil revenues plunged. Total exports fell from $13.8 billion in 1997 to $10.1 billion last year. Hard currency reserves fell by $1.2 billion in 1998, after two years of strong growth.

The current account balance—that’s the measure of imports and exports of goods and services—turned negative last year, too, and is expected to stay that way indefinitely.

This means among other things that Algeria may have to borrow this year to finance its current account deficit and thus pile up more foreign debt and more interest payments on that debt. (If Algeria does have to borrow, the lender will be the IMF, not foreign governments or foreign banks, which will shy away from lending to Algeria.)

The foreign exchange squeeze naturally affects the domestic economy. It cuts investment and consumer spending, and by doing so stifles economic activity. Growth in 1998 will probably turn out to be 1 percent (after 5.5 percent the year before) and for 1999 economists are projecting zero growth. With a population increasing at 2.3 percent annually and GDP not growing at all, everybody’s life gets a little shabbier by just that much.

A Flawed Election

Can newly elected President Bouteflika put together a government capable of dealing with these problems? The election was dubious in the extreme and puts him off to a shaky start.

Last fall President Lamine Zeroual announced that he was retiring 21 months early and set elections for the spring of this year. Bouteflika, who had been out of politics for 20 years, was talked into running by the military. (He had turned down a similar offer in 1994.)

Bouteflika had a certain following among the population. He was the youngest commander in the war of independence and in 1963, at the age of 26, he became the country’s foreign minister, a post he held for the next 16 years. (It says something, of course, about Algeria’s sclerotic politics that veterans of that war are still running the country.)

Though Bouteflika quickly got the endorsement of the leaderships of four of Algeria’s major political parties and the trade union UGTA, rank-and-file membership in the parties declined to follow their leaders. Six other political players—all of them well-known in Algerian politics, some of them thoroughgoing establishment figures—decided to run as well.

The election was severely flawed. All six opposition candidates complained of vote fraud and other irregularities. On the eve of the vote, after failing to gain an audience with President Zeroual to complain, all six pulled out of the race and called on their followers to boycott the election.

Official figures gave Bouteflika 74 percent of the vote with a turnout of 60 percent. But opponents scoff at the official claims. Jemal Zenati, a spokesman for candidate Hocine Ait Ahmed, told reporters that information leaked from the Interior Ministry put the real turnout at 23 percent. The Paris daily Le Monde, usually well plugged in to Algerian affairs, reported the same figure.

“It was a coup d’état by the ballot box,” Zenati said. “The hard core of generals simply nominated Bouteflika in the place of Zeroual.” The six losing candidates, men like Hocine Ait Ahmed, Mouloud Hamrouche, and Ahmed Taleb Ibrahimi, have pledged to continue to oppose Bouteflika and his government and are forming political parties to do so.

Some Hopeful Signs

Public disaffection with the way the election was run plus open opposition from a wide range of political figures will make it much more difficult for Bouteflika to tackle the country’s economic problems.

There are some hopeful signs, though. Civil violence may be tapering off. The number of armed clashes and killings seems to be down.

The OPEC agreement of March 23 appears to be holding. Algeria’s Saharan Light is now selling at over $15 a barrel. If prices stay firm, the country may just be able to wiggle out of further foreign borrowing.

And last year Algeria completed a long-term structural reform plan outlined and approved by the IMF. Like all such IMF programs, the plan involved bringing the budget close to balance, cutting inflation, freeing up exchange transactions, privatizing state-owned firms, establishing capital markets, and lowering tariffs and subsidies.

The idea is to make Algeria more open to foreign trade and more attractive to investment, both from domestic and foreign sources. And investment the country most certainly does need.

But the government has been slow at implementing the program—especially privatization, which has already thrown hundreds of thousands of people out of work—and any government in Algiers, including President Bouteflika’s, will have to be very cautious in continuing with it.

That $15 barrel, if it holds, will be a great help. But don’t look for much more than muddle from the Bouteflika government. And, for the indefinite future, not much improvement in Algerian standards of living.

Colin MacKinnon is contributing editor to the Washington-based Middle East Executive Reports.